IMF Against Use of Forex Reserves for Fiscal Purposes in Bosnia 

IMF

The IMF Resident Representative Office in Bosnia and Herzegovina has stated that any attempt at using the forex reserves of the Central Bank of Bosnia and Herzegovina for fiscal purposes would disrupt the currency board and would pose a threat to financial stability and a risk to the creation of major inflation trends. 

Regarding recent calls for the use of Central Bank funds in the struggle against the crisis sparked by the coronavirus pandemic, the IMF office underscores that such attempts undermine the anchor of macroeconomic stability and add that they should be avoided at all times, especially in crisis situations. 

The press release points out that the Central Bank's currency board has served Bosnia and Herzegovina well for more than two decades, contributing to low inflation, financial stability and confidence in the currency, daily Nezavisne Novine reports. The office adds that under the currency board, the Bank's funds, its forex reserves, must cover at least 100% of national currency issued because that ensures a fixed BAM - EUR exchange rate. 

"As BiH braces for the impact of the COVID-19 outbreak, it has the advantage of a banking sector that is broadly stable. Banks are sufficiently capitalized, liquid, and profitable, and these indicators have improved. Excess liquidity in the banks implies that banks are able to lend. Nevertheless, credit and liquidity trends should be monitored closely. 

The IMF, together with the World Bank, stands ready to provide emergency assistance to help BiH fight the effects of the coronavirus pandemic," reads the press release.